She's On The Money - Family Trusts: What They Really Do—And Should You Have One?

Episode Date: February 18, 2025

When you hear family trust, do you picture Hollywood movies about billionaires dodging taxes, messy inheritance battles, and luxury yachts? Same. But here’s the truth—family trusts aren’t just for the ultra-rich. They can actually be a powerful financial tool for everyday people… if you know how to use them. This week, we’re breaking down:💰What a family trust actually is (in plain English, promise!)💰The tax perks & asset protection benefits💰Who should set one up… and who should not bother💰How to set one up when you decide one is for youSo if you’ve ever wondered whether a family trust could help you protect your wealth, lower your tax bill, or set up your family for the future, this episode is for you!  Join our 300K+ She's on the Money community in our Facebook Group and on Instagram.  Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money. She's on the money.

hello and welcome to she's on the money the podcast that helps you master your finances so hard your accountant will be shaking in their boots oh my gosh you want to make an accountant scared yeah i kind of do that's nasty no i just want them to be proud of you proud they're going to be proud so when you hear the words family trust oh do you immediately think of rich families in movies fighting over their fortunes yes you know the succession or knives out kind of vibe where it's all private jets secret inheritances yes that's trust fund baby yeah that's what we're thinking well we're here to tell you that family trusts aren't just for the mega wealthy and they're definitely not just a hollywood plot point oh that's quite disappointing so you're

gonna make it boring for us you're gonna make it out every single family trust as a very basic tax structure aren't you absolutely how boring let's see if we can make this as boring as possible but this is the main thing is a family trust the right thing for you are you rich mad dog We're going to find out. Maybe I'm secretly rich. We're going to find out. I'm excited and with me is the money expert who's going to help us figure it all out, Victoria Devine. Hello.

I'm very excited to talk about this topic. Are you? Because I used to work in the family wealth space. Well, that's true. And, like, I had exposure to billion-dollar families, which is where I learned about family trusts, not because I grew up wealthy. I feel like, I don't know, maybe my parents, this would be good, maybe your parents are doing the same thing. They just wanted really humble, down-to-earth kids. Good luck that didn't happen for me.

But they wanted that, so they didn't tell me about the family wealth. And, like, one day I know I'm going to walk into my parents' house and they say, V, we were trying to teach you to be humble, but we're actually super rich and you have a family trust set up for you. I'd be like, of course. That makes sense. Of course. They're going to be like, well, it's obviously not working, so.

We'll just give you the money. We'll just give you the money. No, I don't think that's going to happen. I have asked my dad before, like, hey, where are all the houses that you're meant to gift me? He's like, oh, I think they got lost in the mail. Like, so sorry about that. Oh, one of these gets lost in the mail.

I know. We call Oz Post or something. Yeah, like, what? Dad, I thought that I was born rich. Yeah, like, okay, joke's over, guys. Yeah, like. Where's my houses? Do you have this all the time too?

All the time. Anyway, I feel like every time we do a call out for episode ideas, this topic always pops up, like literally every single time. It's always in the DMs. it's always in our question boxes. So I guess we're finally delivering what you've been asking for and we are breaking down family trusts, what they are, how they work, whether you actually need one. And as you said, Bec, when you hear family trust, it's super easy to picture, I guess, dramatic rich families in movies. They're fighting over an inheritance. They're probably

at a mahogany dining table doing so. There's a maid in a maid's outfit. It's very stereotypical. Seeing about a dish. Yeah, yeah, yeah, exactly. But here's the thing, family trusts, they actually can be a very smart financial tool for regular Joe Blows, for normal people, not just people who have millions and are super wealthy. But, and I guess this is a very big but, there are some, if not a lot of rules, risks, and costs that you need to know about before you jump on the bandwagon and go, oh, this might be right for me. So we're going to go through all of them. And I'm hoping that we can do it in an exciting way. Oh yeah. Because honestly, this can be a little bit bland. So what actually is a family trust? A family trust, it's a legal structure.

Okay, I'm ready. And it is designed to hold and manage assets. Yes. So you could think of it like property or some shares or a family business and it holds it on behalf of a group of people, not necessarily just one person, although it could be one person and it's usually, get this, your family. It's not always money. I just thought it was money. No, it could be assets. I see. Could be assets. And it's also known as a discretionary trust. This is a complicated bit. And I wish I could stand up with a whiteboard because when I used to explain this to clients, I'd be like, sit there. Have you got a cup of tea? Or I'm going

to do some drawings on the whiteboard about how the family trust works. And I would like draw this big umbrella and put like your names up the top and show you how this works. But essentially, the trust itself doesn't own the assets. You need to think about the trust like a bucket. The bucket just exists. And just because you put something in the bucket, does it mean that the bucket owns the ball? Oh, no. So say you own a basketball, Bec, and then there's a bucket over there. And I say, go put your basketball in the bucket. Neat and tidy. Do you still own the basketball? I would like to think so.

Yeah, but you just put your basketball in the bucket. Yes. The person in charge of this bucket, so there's a keeper of the bucket. Keeper of the bucket, not of the things inside necessarily. Which is also the keeper of the trust. They're called the trustee. Yes. And they're the ogre at the front gate of the bucket.

They decide how the income and assets are distributed to the beneficiaries. So once you put it in the bucket, we go, Bec, you can't just go pull it out whenever you want. You put it in the bucket. but there's a gatekeeper at the door that says, oh, did you want to use your ball? No worries, you're back. You're on the list. You're on the door list.

That's all good. You can come in. You can use a ball but put it back up when you're done. Yep. Okay. So the bucket is like a safe spot. It's guarded. It's looked after.

If people were looking into you, Bec, and going, does she own a basketball? Hold on. We're just going to check, Bec. I can't see the basketball. Hard to say. I'm the tax man. Bec must not own it because it's over there in the bucket.

Oh, right. Is this illegal? It's legitimate because that trust acts as an individual when it comes to tax. Understood. So then go and look at the bucket as though that bucket was a human being and go, well, what's in the bucket? And they'd be like, a ball. All right, well, we'll tax that bucket, not Beck, because we just checked Beck. Beck doesn't have a basketball. Yeah, yeah, yeah. Does that make sense? I feel like it's not making sense. No, it does. Basically, you've got someone who is the decision maker of the trust and they decide how you get access to your basketball. They decide how you can use it, when you can use it, whether you can sell it, whether you can share it with your friends, whether you can rent that basketball out to

your friends and make some money. But if you rented it out to your friends and made some money, that has to go back in the bucket because the basketball and all of its assets live in the bucket so if the keeper of the bucket if it's like tax time yeah say in the bucket is like thirty thousand dollars worth of assets yeah the tax person will tax the bucket separately as if it's its own entity they'll knock on the door and be like hello mr trustee yeah can we look in your bucket and if there's thirty thousand dollars worth of stuff in there then they'll just tax thirty thousand dollars yes oh yeah they're not going to just make it up and like pick random numbers. No, but it doesn't go on to anyone else's. No, no, it's not. It's not tied to you.

You're just a beneficiary. So you're not going to be taxed individually. And again, I'm not an accountant. So talk to your accountant about how this works, but you're just listed as a beneficiary of that trust. So, I mean, if you had some money distributed to you, so say, you know, there's $30,000 in that bucket. And this year you said, hello, Mr. Trustee, I would like some income and I gave you $5,000. Now you've got that $5,000. You might be taxed on that. You need to declare it because now it's become personal income instead of income inside the bucket. Understood. But for the time that it lives in its little bucket, it stays in the bucket and it will only be taxable by you personally if you took it out forever. Okay. So basically,

the trustees, the decision maker, and then the beneficiaries are the ones who get the financial benefits. But there's so many buts in this episode. And this is, I think, very important. The trustee doesn't just make decisions on a whim. And as I said before, you don't just go, knock, knock, knock, can I just have the money? And then they go, let me think about it. Like they actually have to follow what's called a trust deed. And that's like an instruction manual or a rule book associated with the trust. And that rule book, there's a standard one. So if you open a trust in Australia. It just comes with a standard trustee. And you can edit that rulebook when you set it up because you haven't signed anything yet. And I might go, oh, Bec, here are

some extra rules on the rulebook. And a good example of this is, let's say I'm setting up a family trust and I'm your mom. And I go, all right, I've got some money. I've got my $30,000 in my trust. And I want Bec to benefit from this. And I'm really excited about this because I'm just setting myself up for future wealth. But also, I saw this a fair bit when I was managing family wealth. The parents don't want you getting the money if you're being a little bit naughty. Right. So like if you're addicted to drugs, if you haven't completed school, if you haven't done the things that they stipulate, there could be a rule that says, okay, if Bec does any of these things, she doesn't get her payouts. And that can go in the trust deed. The trust deed starts as all

of the basic requirements, nothing shiny, nothing exciting. But because the trust deed is being set up by somebody who wants to control it, they can put whatever they want in it. They could write, Bec has to wear green every day, otherwise she doesn't get her money. Okay. I could abide by that. I think that the important thing here is those rules could be as rogue as you want. Historically, I've also seen, and this was a billion dollar family, if the grandkids didn't come to Christmas for two years running, they didn't get their trust distribution that year. Oh, wow. So you wouldn't get paid. okay so if you don't come to christmas grandparents aren't giving you some cash

all of a sudden i love christmas yeah all of a sudden but that's a good example of you know a rule that was put into a trustee by a family to manage the wealth and manage how it was distributed and just what they wanted sure no judgment like literally you do you it's your money you can distribute it however you want but i have seen people limit it like this money will be distributed to Beck when she turns 18, if she's in university. Sure. If she's not, it's 25. So they can make up their own rules.

Anyway. Okay, got you. The deed literally just sets out how the trust can operate, who the beneficiaries are, what the trustee can and can't do. So you're making rules for the gatekeeper as well. So I guess in short, the deed is what keeps the trust fair, legal and running really smoothly. I am really curious to know, like, how to actually set up and... I'll tell you all about how to set up a trust.

Yeah, okay. But actually, good idea. Let's go to a break. And on the flip side, I'm going to talk to you about how family trusts can save you money when done right, what setting up one takes and what it's going to cost, and we'll get into the nitty gritty. Great. Welcome back, everyone.

We're talking about family trusts. Ah, talking about something very, very exciting today, family trusts. So, Vy, before we went to the break, I was wanting to know, like, how you set up a trust and how you even take money out or assets out. How's it work? And also, like, what goes into running one? Like, is it as complicated as it sounds? Yes and no.

So, there's a bit of admin involved and every single year, a family trust has to have prepared a set of financial statements, just like a company would. So, I think one of the best ways to think about a family trust is that it's a business. It doesn't have any products. It doesn't have any services, but it's going to act in isolation over there. Sure. And it's going to hold some assets. So, these financials, they're going to calculate how much profit the trust made, basically

all the income earned by the trust and then minus its expenses and any carryover losses for them like previous years. Is that for like if a trust has got shares in it? For anything. Okay. So in the same way that you and I would sit down and do your tax return and we go, Bec, how much did you earn this year? All right. Did you have any expenses we can claim? Oh yeah, you did. You did some travel. Okay. No worries. Did you do some side hustles? Yeah, yeah,

you did. All right. What profit did you make? And like, we're just doing like a P&L for the trust in the same way that I would do your tax reporting, but we need to get all of the admin together. And you know, if last year you had a loss, we would be able to carry that forward, you can do the same thing in a personal trust. Then once the profit has been calculated, same theory, I suppose, is me calculating how much you earned in total this year, which is hard to do right now. Until June, I can't sit down and be like, oh, how much did you make this year, Bec? You go, well, I know what my annual salary is, but I don't know what my side hustles did. So we have to wait until a certain period of the year to be able to calculate

this. But once the profit is calculated at the end of the financial year, the trustee gets to deciding how they're going to split that profit among the beneficiaries. So, you know, who gets what slice of the pizza. But here is the important bit. The trust itself doesn't pay tax on the profits. Okay. So who do? The asset owner or the... Yeah. So it's living in the bucket and the bucket It is self-sufficient. The beneficiaries pay tax. So whatever amount is distributed to each beneficiary. So like, as we said before, there's $30,000 in the bucket and we gave you $5,000. You might not be the only beneficiary, but the profits of that, so you could park 30 grand in there. And then if in one year we looked at it and there's still only $30,000, we wouldn't be

declaring a profit because the trust just still has the same assets in it. It hasn't made any money. But if that $30,000 was invested and we made $1,000, the ATO would go, oh, how much is in the account or how much is in the trust? And we'd go, well, it's $31,000. And the ATO would go, okay, cool. How much was in there to begin with? $30,000. Great. You've made $1,000 profit. We're going to tax you on the $1,000 profit. Tax everyone who's... So, we're going to be taxing the beneficiaries because the profit can't stay in the trust. The profit has to be taken out of the trust and distributed to you. So, the $30,000 asset can be parked over there.

But if we made a $1,000 profit, we need to distribute it. So, if you're a beneficiary and you already have a salary for a job, that trust is on top of that and you'll be taxed at your individual tax rate. Let's say you've got, I know what your job is. you pay $0.325 every dollar that you earn. Yeah. So if I then distributed another $1,000 to you this year, Bec, you would be paying $0.325 in the dollar. So you would be paying $320 in tax on that and you would take the profit home. Okay. Got you. Hold on. Backtrack, Bec. I think I need to correct myself. Oh. I think I said that you were paying $0.325 in the dollar on tax, which would have been correct, but the tax rates have just changed. So, if I'm not wrong,

for this year, so the 2024-2025 tax year, you're actually only paying 30 cents in the dollar. Oh, that's nice. Which is nice. You got a little bit of a tax cut. Yeah, that's cool. We love to see it. So, just correcting myself, it wouldn't be 320, it would be 300. Okay, got you. Sorry. You know when you're just like, am I? Hold on. Totally. Just got to check myself before I wreck myself.

Absolutely. That number's still stuck in my head as well. 32 and a half. I feel like I've been saying it for literally years. I need to like re-correct the marginal tax rate chart that lives in my brain. Right. Bit hard. Hey, there's so many numbers. It's fair enough. Okay. So the trust doesn't pay tax. No. Say like there are five beneficiaries. And so that $1,000 profit is equally distributed to regardless of who owns the asset. Well, it could be. So that's where it gets a little bit fickle, right? And I'm not saying that this is good, but I've seen it a lot. Say you've got a sibling and your sibling's 19 and they have their first job, but they're not working very hard because obviously if they've

got a family trust, they're from a really wealthy family. No, that's not true, but you know what I mean? Oh yeah. But they're not working that much. So they actually just did a few casual shifts. They earned $12,000 this year back because they just earned about a grand a month doing some casual cafe work on a Sunday, their marginal tax rate is actually nothing. Because the first $18,200, Bec, that everyone in Australia earns is actually taxed at $0. So no tax at all. So if your 18-year-old sibling earned $12,000, they've got a bit of buffer before they hit that $18,200 limit. So if there's five of you and you're on a marginal tax rate of $0.30 in the dollar, your trustee, who's the person who makes all the decisions, might sit down and be like,

Bec, what's your marginal tax rate? 30 cents. Okay. Well, to make the most of this money, this year, we're going to distribute the whole amount to your little sister because they're not going to pay any tax if we distribute it, but we would lose 30% if we gave it to you, Bec. Yeah. So they might make decisions like that. I'm not saying that it's fair and reasonable, like that all comes into how family wealth works, but families might choose to distribute to the person on the lowest tax bracket. So one of the biggest perks of a family trust is that it's flexible and the flexibility that you get when it comes to tax planning as a family unit. So unlike other structures, a family trust actually lets you allocate income to different

family members based on their individual tax situation. So I might sit down and be like, okay, Bec's income means she pays 30 cents in the dollar. You know, your mum might be really rich, has a big dog job, and he's earning more than $190,000. So he's paying 45 cents. So it doesn't make a lot of sense to distribute to your dad. But your mum, she doesn't work. We're being very stereotypical here just to paint a picture, right?

Like I'm definitely not saying that this is the norm, but it does paint a very clear picture of how this works, right? So your mum, she doesn't work. So if one person in your family is on a lower tax bracket, like a stay-at-home parent or partner or a uni student or maybe a retired parent, you could direct most of the trust's income to them, which then reduces your overall tax bill for the family. So like if I distributed that $1,000 to the dad, we're losing 45% of it. But if mum who hasn't worked this year gets the whole thousand dollars and, you know, as a family, we then manage our cash flow together, that's the most tax effective decision for my family. Because, you know, maybe what's mine is yours and what's yours is mine and we actually have joint finances. But if it's distributed to the mum and we claim it on her tax, we're in the most financially beneficial position, right?

And it's a very strategic way to manage income and make sure less of it ends up going into the hands of the taxman. Yeah, very clever. I'm not saying that we're trying to be evasive of tax, right? And there are lots of rules that have been put in place to make sure that tax evasion can't happen. But the key is here, the trustee has to distribute every single dollar of the profit at the end of the financial year. Can't just build up in the trust. You can't just make heaps of money in the trust so that thousand dollars that we made if you don't allocate that out to your beneficiaries you can leave it in the trust if you want but you will be paying 45 cents tax so you will be paying for the most so like in this situation where we've got beck on 30 you've got

that younger symboling that earns basically not much and then you've got you know mum who doesn't work, does it make sense to leave the money in the trust? Yeah. No. No. Okay. So we distribute it. Yep. I just want to quickly check. The profits are definitely different to like, say you've added extra $100,000 in assets. Yes. 100%. Cool. And that's like- They're seen as very different. Yes. Understood. Okay. Okay. Okay. It's like putting money into your savings account. The ATO is not going to be like, oh, Bec has another $1,000 in her savings account. We'll tax her on that. They know it's post-tax income. Yes. Okay. Got you. Okay. So the trust doesn't pay tax, but the beneficiaries

do. Yeah. So would families not just give all their income to the young kids? Like that makes sense, right? Yeah. And do you know why I picked the 19 year old example? Because they're over the age of 18. Yes. Because I was hoping that we would get to this topic. But similarly to the way that we've spoken about investing for kids, which we've done episodes on, you can find them by looking up she's on the money investing for kids. When people are underage, different tax rates apply. So if you gave all of your income from a family trust to your kids and thought, great, that makes sense because, you know, little Johnny, he's only 15 or he's only five. I can distribute all the income from my trust to him because he didn't have any taxable income. And you think that's

a really good idea. The government's like, well, Beck, we already thought of this because we're not going to let you evade tax. You can use your wife. You can use your husband if they, you know, are stay-at-home parents. Sure. That's the line we're going to draw. Sure. You try to use your kids. The ATO actually has a very strict rule on minors. Kids under the age of 18 only have a tax free threshold of, get this, $416 a year for income distributed from a trust. Wow. So that thousand dollars isn't going to go that far is it no true no anything above that is taxed at the top marginal tax rate of 45 cents oh that's unfair what about those little kids exactly right so you might go all right well i think kids aren't gonna work maybe do need to get a wife after that

yeah okay okay so i want to know what like the reason is to set up a trust because i'm thinking if you're like you're already paying tax on it okay so let's break down what are the reasons to set up a trust let's start with that okay so asset protection is the number one reason people set up a trust. So assets in a trust, they're not technically yours anymore. So like the basketball example I gave before, we had a bucket over there and I asked you to put your basketball in the bucket. Technically, you know, that's still your basketball. Yeah. I'm not going to withhold the basketball from you and, you know, have an argument over the fact that someone else owns it. Someone else doesn't own it, but it's now protected. It's in the bucket. Let's pretend it's a magic bucket.

Yeah. No one can take it off you. If I like came over to you, sniffed around, was like, do you have a basketball? Looked up your top, can't see a basketball. Beck does not have a basketball. They're protected. Beck, let's be dramatic. If ever you got sued, if ever you filed for bankruptcy or you went through a really messy divorce and a lawyer was sniffing around being like, she got a basketball. I want to see if I can take her basketball off her and give it to her ex-wife. Yeah. They can't see it. They can't see it. It's not theirs. I mean, in a court of law, you will have to declare your trust and the assets in your trust. But if you're being sued or if you go bankrupt, like it is definitely a protected asset. The second thing there is a

trust is very handy if you're planning on passing wealth down to your children, even their kids in the future. So it actually lets you control exactly how and when your assets are distributed. So you remember before I was telling you about a trust deed, which is kind of like the rule book. So a good example here is instead of, I guess, handing everything over in a big chunk and being like, you could have all of my stuff back. You could set it up so that your kids get access to money when they hit certain milestones. So like when they turn 18 or they turn 25 and they're buying their first home, it's all about making sure that your hard earned assets stay in the family and are used in a way that you would want them to be. And that's where you get to create

the rules. And I think that that's really fun. Okay. Is there any other reason? Yep. So, there's a couple. So, there's another big one, protecting against family disputes. So, a trust can actually avoid arguments over things like inheritances or assets because, Bec, let's face it, stuff gets so messy when more money's involved. More money, more problems. Literally, you know how we were talking about the mahogany table and the family talking about their trustee. We all know that that situation often arises when, and I'm not trying to be rude here, but a death in the family happens. They're all fighting over the will and disputing the will and being like, no, that's not what Beck would want. Oh my God, Beck's husband was cheating on

her and this and that. Do you know what I mean? It gets real dramatic real quick, especially when lots of money is involved. It's actually insane how messy these things can become. But a trustee, that's not a will. That's set up much before. That's a full document that is often not able to be contested in the same way that you could be like, I'm going to contest that will. So a trust deed, it lays out everything and there's actually no room for confusion or arguments over who gets what. That's clever. And it can be annoying. And I'm not saying that all of these things are perfect and the trust deed's set up and then no one argues. I have sat in many a family meeting, not my family, where the great grandparents have set something up and it

no longer works for today. They might not be able to access their trust distribution until they're married. And I mean, if that was set up in the 1960s, you might go, okay, that kind of makes sense because little Johnny's are going to get married. Johnny might not want to get married in 2025 and that is very normal now. So, sometimes it does cause friction. And then the last thing I want to say is trusts can also have massive benefits if you're running a small business. They can hold your business assets. They can protect you from personal liabilities and they can allow profits to be distributed to family members in a way that is tax effective. And my friend, that is why I have a family trust. There's not heaps in it right

now, but my businesses are not owned by me. They are owned by my trust. And I am the beneficiary of my trust. I see. Sole beneficiary. I'm the sole beneficiary of the trust. And that was set up so that I can protect myself so that if anything goes wrong, I go bankrupt. If I get sued, she's on the money is protected. If I go through a messy divorce with Steve, which I hope never happens because I do genuinely think that even if that happened, we're kind of on the same page. Yes. But I am protected in a way that makes sense. He's not a beneficiary on my trust, if you want to know, because it doesn't make sense for him to be a beneficiary on my trust. Yeah. He has his own full-time income. Like I can't distribute income to him. Yeah. In a way that would make

sense. And just really quickly, if you're like going through a divorce, you know how sometimes people are like, oh, you can take half of whatever. If something's in a trust, like they can't. So this is where it gets a little bit tricky, sticky, right? It depends when the trust was established. I see. So if the trust was established prior to you getting into that relationship. Oh, prior to the relationship. That's a premarital asset. Yeah. I'm not a lawyer. You need to talk to your lawyer, this is just how I've seen it fall out for previous clients of mine. But if you establish that trust while in a relationship, it could be contested. Regardless if you're married. And I mean, okay, it depends. Like if you're in a good solid relationship, maybe you've

decided to establish a family trust together. Like you might not just be protecting assets from your partner, but it's also a way that I have used historically for my personal financial advice clients when I had them to protect their assets. So good example of that, young girl, client, gets a very big inheritance from a grandmother that passed away, talking about a couple of million dollars. She was really worried about how that might come into play if she met someone, got a boyfriend, got a partner, if it was just sitting in her bank account or these shares were just in her personal name. So she was single at the time. She came to me. We did a whole heap of tax planning with her accountant, with me, we set up a family trust. We got all of that established

so that if ever she got into a relationship, that wouldn't come into play. So we could say, no, sorry, like that's in a family trust. It's actually locked and loaded away from you. You can't get half of her inheritance if you break up with her. Wow. That's actually very good. Right. And I feel like sometimes we need those tangible examples to go, oh yeah, asset protection. what does that even mean, Bec? Like, what is asset protection? No one gets into a relationship being like, I adore this person. Can't wait for them to screw me over later. Yes. Like, no one does that. No. But like, plan for the worst, expect the best. Exactly. You just got to be safe. And it doesn't mean, it doesn't mean that you think the person's dodgy. It's just,

you know, you're thinking about yourself. Exactly. What are the cons in this case? So there are obviously a few, and it's not all sunshine and roses when it comes to a family trust you. Do you have to really think about whether you want one? Some people want them because they're planning on creating wealth. So I've had clients set them up who have regular jobs, like one earned 70 grand, the other earned a hundred grand. Like I would say that's a relatively regular income for a family. And they set it up because their intention was to aggressively invest to retire early. And they were like, actually, we want to create this into family Wealth. We're really committed to this plan and we want to set up a trust so that when we start

investing, we're starting to invest inside that trust for asset protection reasons. We're happy with all the fees and charges because literally we're sending like 60% of our income to these shares. And we don't want to have to transfer the shares once they're established into a trust. Because if you transfer something, usually you will have to pay stamp duty. So you'll have to pay some taxes or you have to pay some amounts that would be too much. So they'd thought about it. That was their plan. But set up costs are a lot above and beyond the financial advice you might need to get. It can cost anywhere between $1,000 and $5,000 to set up a family trust, plus then annual admin fees and accounting fees, which I would say on average range between $1,000

and $3,000 a year. So it's definitely not an option that you go, oh, just set it up one and done. Like there's ongoing admin costs and expectations. I see. That's where the rich family idea comes from. Yeah, that's why they're usually reserved for the wealthier because like, let's be honest, who is spending $3,000 a year on an asset if it doesn't super financially benefit you? Yeah. They're a bit complex. So family trusts aren't exactly like a little DIY option. You do need an accountant or a lawyer to help you manage it long term. And there are relatively strict rules to follow so you can't dip in and dip out like it's not like a savings account over to the side and then I would say ATO scrutiny like tax man is all over it like

the tax office is all over family trusts to make sure that they're not being used for tax dodging like because people might set them up and be like oh this is so smart I'm going to distribute it like they aren't silly and with the rise of like data matching they're getting better at calling out like, oh, that's a dodgy family trust happens all the time. So you do have to play by the rules. It's not like, oh, set this up and you could be a little bit sneaky. No, sir, that's not going to happen. No. So if you say, for example, have like $30,000, I don't know why. I don't know. I pulled that out too. In shares and then each year you have $1,000 profit. Yeah. Can you put that $1,000 profit just back into the shares in your? You could, but there might be a roundabout way of

going about it. So again, I'm not an accountant, but like, let's say you left it in the account and said, I just want it to be reinvested. It will be taxed at 45 cents. The profit will be taxed at 45 cents. I might say, but Bec, you pay 30 cents tax. So let's distribute it to you. So I'm going to put the money into your account. We're going to do your tax return. We're going to declare the money. Then we're going to put some of that money back into the trust. Okay. That would make sense. Cause I'm like, I'm struggling to know why that would be beneficial if all the money you're earning on shares you know but are there any times where like it might actually not be worth it like when it's not like a one-size-fits-all approach yeah

okay it's definitely not so I would say that family trusts aren't a good plan if you're just starting out your finance journey like if you're just on the start of your journey or you don't have heaps of assets like I would just be like there is literally no point and I mean that not in an offensive way. Just why would you spend the money? It's a waste of money because if the setup costs and the admin costs outweigh the benefits, like for example, there's low or no income generating assets and no need for tax planning, why would you do it? And then for people with relatively simple financial situations, so I guess those without kids or dependents at all or major assets, there's likely easier ways to manage your money. It does get a little bit complex.

Do you want to go through a couple of situations? Yeah, please. I feel like examples are the best way to learn. So let's say single, young, professional, let's pretend Beck's single. You don't have a lot of investments yet. It's probably not worth it yet. I would say focus on building some wealth first. You're a small business owner. You've just started your own business but you're planning on making some bigger profits like you're not planning on just you know doing some local markets and calling it a day there like you're planning on like scaling this business at some point could potentially be worth it because I would say protecting those assets is really smart and then distributing the profits to you could be helpful

yeah let's say you've had a couple of kids back with Jess and then you break up sorry and then And you meet someone else and they have kids and you've become a blended family. Cute. Before you broke up with Jess, you built some wealth with her. Yeah. Could be really good for protecting your assets. Yeah. What about like parents with adult kids?

It could be really good for parents with adult kids to set up a trust so that they can distribute wealth to their kids before an inheritance happens. a lot of people who have wealth are now looking at it in wanting to see that wealth spent by the younger generation instead of waiting until they're dead yeah they're kind of like oh heck I would actually like to see you purchase your first home I would actually like to see you you know be able to set your kids up instead of waiting for me to die and then getting access to an inheritance and that's a good way to do it and then like maybe a couple with minimal assets I would probably say it might not be worth the cost unless they have heaps more to protect. Okay.

So I feel like the best thing you can do is probably talk to a finance professional. Yes, I see. So let's say someone's listened to this full episode and thinks a trust actually might be a good idea for their situation. What's the first step? Like, how do you actually get started? How do you set up a trust? How do you set up a trust?

You talk to your accountant. You can also speak to a financial advisor. and the first thing I want you to do is not just say, I want to trust, but can you just tell me if it's worth it for me? Can you do pros and cons list for me personally? Any good accountant will be like, say Les Bet, come in for a coffee and we'll do a pros and cons list on the table and put your personal situation right in there. Listening to a podcast, great for base level education, great for understanding the concept. I cannot tell you what the right situation is for you, but an accountant can. Financial advisor could do the same thing. If you decide to set

up a trust, it's very simple, but it's also a lot of signatures. There's a lot of paperwork and that's fine. I used to actually hate setting up trusts for clients because we're talking 80 plus pages of a trustee that you need to print out, get signed, have them initial so many different pages. It's just an admin nightmare. For me, not for you. If you're the client, Bec, I do all of the printing. I do all of the scanning. I organize that. And I put those little sticky labels on that say sign here. And then I give you a coffee and be like, I hope your pen's ready. And then you have to sign a heap of times. It's fine. But the accountant will set that up. They'll register it with the ATO and set it up in the same way that they would a business. So you need to name your

trust. So one piece of advice I have is that if you are ever setting up a family trust, never use your name oh so i would never say beck syed's family trust okay like if you're telling me that it's for asset protection and you don't want people to find it don't put under your name yeah you can call it anything though i and i won't tell you what my clients trust names were but like there were some funny ones yeah okay like i had a client and it was similar but not this name but it was like they were a very conservative investor and they called their trust money for Bitcoin. And it was very funny. So things like you can name it anything. Just please don't use your name. Like you want to separate it from you. That doesn't mean you

don't own it, but like anything. Name it a past pet. Name it like the name of the street that you grew up on. I don't care. Just don't make it your family name. And when you're choosing your trust name, you'll also choose a trustee. So it might be a company or it might be an individual and then you're also going to pick all your beneficiaries. The trust deed needs to be drafted by a lawyer. There are places that do them automatically. So like there are actual trust deed lawyers that basically have a cut paste trust deed. If you want the bare minimum, you can get that. I think we used to pay like 400 bucks for a trust deed from one of these companies. But if you want any bells and whistles, you need to sit down with an individual lawyer to get that written

up. And then you just need to pay all of the setup costs and register and sign all of your names away and whatnot. And then you might also, you know, open a bank account, but you can't open a bank account until the trust is set up because the quote trust will set up a bank account if you want to own money. I see. Okay. Does that make sense? Yes. So like it has to exist to be able to set up a bank account. I see. Here I'm catching myself thinking like, oh, this is not accessible for everyone, but I'm like, oh, if I can't afford it, I probably don't want a family trust or a trust, I should say. Yeah, we don't want to be spending money unnecessarily. Yes, I see. So what about if you have investments, but you don't want the hassle of a family trust now? Can you

transfer these things into the trust later? Yes, you can. But again, there's so many buts in this episode. You can transfer assets, like you could transfer property or shares into a family trust that's already been set up, but you want to consider a few things before you do. So you're going to need to transfer the ownership to move them into the trust. And if you know you want to hold these assets in a trust, it can generally be better to purchase them directly through the trust from the outset. And this is going to avoid stamp duty and tax. Because you know how I said before that the trust is seen in the eyes of the ATO as an individual? Yeah. If you're transferring a property from Beck to Beck's trust, the ATO is going to see that as another individual buying it.

Yeah, I see. So if you're transferring it, stamp duty, tax payable, if the asset has increased in value, they're going to try and get you on capital gains tax. So you've got to weigh up whether it's worth it. And I actually had a lot of clients where they would set up a trust and be like, I really want to put my property in it. And I'd be like, no, sorry. Like financially, that's not viable. Future properties, great. We can put that in the trust. But right now it's not financially viable. And you just told me that you don't want to be in this house forever. So let's just wait until we sell that property and then we'll never buy one in your personal name again, we'll buy it in the trust, but we're not going to just incur heaps of tax just to change

the names and the ownership structure. It might not be worth it. But if you set up the trust and then bought the property, so for example, Bec, you've decided you're going to be a property investor. I'm going to own heaps of investment properties. You might want to set up a trust first so that they're not in your personal name, they're in your trust from the outset. But you do want to make sure that you're chatting with an expert about transfer costs and work out if it will be worth it because there were a couple of times where we did do those transfers because it actually ended up being the best thing for the client. Like financially, yeah, it cost them a lot of money, but they got a lot more asset protection or it put them in a better

position or, you know, it might've been a rental property, right? So good example of that from way back when is husband owned an investment property, got married, wife was a stay-at-home wife, but because he owned the investment property, all of that rental income came directly to him under his tax return. By transferring that property into a trust, we could distribute that profit to his wife and she didn't work. So that was financially tax beneficial. And we did this cost benefit analysis that yes, there's a lot of upfront costs to doing this, but over the long term, he had no intention of selling the property and always renting it out. I think it was like after eight years or something, it broke even. And then after 10 years, it was like making a profit.

But we did have to kind of take a step back to take a step forward in their wealth creation journey. But you can only work that out if you talk to a professional. I mean, you can close a trust. You can close a trust if you decide it's not working for you. Beautiful. Beautiful. Easy.

Okay. We've actually covered so much today. I think the biggest thing I've learned is that family trusts aren't just some exclusive tool for the mega rich. But don't stop making the movies about the mega rich. Yes. Don't stop making those movies. We need them.

You do need a little bit of wealth, probably more than I have right now. But regular families can benefit from them too, but only if it's the right fit for your situation. Yeah, 100%. And I think importantly, and let's leave it on this, family trusts can be a very smart way to manage your assets or reduce some tax or plan for the future, but they're definitely not a must-have item. I think so many people, when they get onto their wealth creation journey or they start

listening to their podcast, they're like, I want to do this properly. Like, I really want to, you know, get my stuff together. I probably should get a family trust because that's legitimate. like it feels full legit right might not actually be in your best interests you don't have to be wealthy to set one up but you do have to have a very clear reason for doing so and if you found this episode helpful please share it with someone else who might be considering a family trust just gonna state the obvious if you got this far into the episode and you're not following us and you haven't subscribed to this podcast my friend now is the time because it genuinely helps us so much

to keep creating content that's all about putting you in the best possible financial position. Gorgeous. All right, guys, we'll see you on Friday. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment

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